Economic Thought History, Philosophy, and Methodology

The Decline of the ‘Original Institutional Economics’ in the Post-World War II Period and the Perspectives of Today

Arturo Hermann

Abstract

Original, or ‘old’, institutional economics (OIE) – also known as ‘institutionalism’ – played a key role in its early stages; it could be said that it was once the ‘mainstream economics’ of the time. This period ran approximately from the first important contributions of Thorstein Veblen in 1898 to the implementation of the New Deal in the early 1930s, where many institutionalists played a significant role.

However, notwithstanding its promising scientific and institutional affirmation, institutional economics underwent a period of marked decline that spanned from the mid-1930s to the late 1980s, when a new season for institutional economics was set in motion.

In order to cast some light on this complex issue – without any claim of completeness – we have organised the work as follows: in the first section we consider the main interpretations of this phenomenon. In the subsequent sections we analyse a number of ‘endogenous’ aspects which might have played a significant role in the period of decline: (i) the relations of institutional economics with Keynes’s macroeconomic theory; (ii) the links between theoretical and empirical analysis and the supposed lack of a clear theory; (iii) the interdisciplinary orientation.